Except that the premise is wrong - capitalism most definitely scales at that level. The railroads across America that were built in the 1800's were not a mandate by the federal government, they were private enterprises.
Am I crazy, or weren't the railroads heavily subsidized by the government? I think this heavy flow of public capital into a small number of hands created some of the "robber barons". In the long run it was probably the right call, as this kind of infrastructure spending and innovation doesn't happen without government involvement. Still, it's interesting to think how in the short-term it led to some pretty astounding income inequality. Maybe the issue is why didn't the government just build it themselves, sure it probably wouldn't have been built as efficiently as the worker level, but the overall cost might not having been much higher.
"From 1850-1871, the railroads received more than 175 million acres (71 million ha) of public land - an area more than one tenth of the whole United States and larger in area than Texas."
